Oh, I *know* I'd be smashed if I were to participate in an MP match.

Much as I love strategy games, I'm only a mediocre player -- even with games I've had a long time like BOTF -- and I'd be quickly obliterated by actual human players!
That being said, I did finally figure out a way to up the difficulty in BOTF, but without causing the AI to behave so completely insane it breaks immersion (which it does on Hard & Impossible): I simply select Normal difficulty, and then set the other factions to one civilization-level higher than myself. (So if I'm playing at civ level 1, the rest are on level 2.) I found this generally seems to give the AI enough of a leg-up to stay competitive with me, but without causing its behavior to be even more bizarre than normal.
Note: This is playing the game with the Balance of Power mod, so I can't guarantee it'll work as well with another mod (or in the vanilla version).